Submission #2

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Die Deutsche Kreditwirtschaft / German Banking Industry Committee

Question 1: Do you have any comments on the general requirements that should drive the calibration of recovery indicators as proposed in paragraph 27 of these guidelines? No comment.

Question 2: Do you have any comments on the requirement that there should be no automatic recalibration of recovery indicators upon the application of temporary supervisory relief measures, however it could be allowed by competent authorities in those cases specified in paragraph 31 of these guidelines?

A distinction should be made between recalibrations for early warning levels and recalibrations for red levels. It should certainly be possible to modify early warning levels by means of temporary supervisory relief measures, as these are usually already defined on the basis of operational risk management.

Question 3: Do you have any comments on guidance introduced in relation to actions and notifications upon breaching recovery indicators, including the proposed timelines for internal escalation and notification to the competent authorities?

When indicator breaches are notified to the supervisory authority, a distinction should also be made between the early warning level and the recovery threshold. In our opinion, there is no need for any obligation to notify the supervisory authority when an early warning signal is reached because they are calibrated in such a way that the normal operational control function is intended to take effect outside a restructuring context.

Question 4: Do you have any comments on introducing a possibility for competent authorities to request institutions to provide a full set of recovery indicators (breached or not)?

In terms of the requirement for monthly submission of values for indicators, it should be noted that there are also indicators based on FinRep data that are only available in a quarterly cycle. For this reason, the phrase “monthly basis” should be worded more neutrally.

Question 5: Do you have any comments on the proposed threshold calibration of regulatory capital indicators at levels above those requiring supervisory intervention and therefore to be generally calibrated above the combined capital buffer requirement while still allowing calibration within buffers only under certain conditions?

We would like to use this question to refer to the EBA’s comments on “Issue 8” in its report on the application of early intervention measures (EIMs) in the European Union in accordance with articles 27-29 of the (BRRD EBA/REP/2021/12). With reference to EBA GL on recovery indicators, it suggests to include clarifications that “in principle, institutions should be able to apply recovery options before supervisors use the EIMs”.

Introducing a clarification along these lines would be a first important step considering that the setting of further EIM quantitative triggers in the EIM framework or the tightening of existing EIM triggers – both of which we oppose – might come with knock-on effects on the recovery indicators.

As recovery indicators need to apply far earlier than the triggers for the EI regime, we nonetheless see the risk that a completely healthy institution would have to contemplate on counter measures without a reason and on top of that justify to its supervisory authority the failure to take such countermeasures.

Question 6: Do you have any comments on the proposed calibration of the recovery threshold for MREL? No comment.

Question 7: Do you have any comments on the proposed threshold calibration of regulatory liquidity indicators (LCR and NSFR) above their minimum regulatory requirement i.e. 100%?

From the supervisory authority’s perspective, applying a buffer to the 100% requirement in all cases is understandable. Particularly in the case of liquidity, however, this should be small because the recovery options for liquidity usually take effect quickly.

Question 8: Do you have any comments on the proposed threshold calibration for the indicator of liquidity position?

Including an economic liquidity position in the recovery plan makes sense if this position is already being used internally for management purposes.

Question 9: Do you have any comments on the proposed changes to the minimum list of recovery plan indicators?

It is unclear why “GDP variations” are still on the minimum list of recovery plan indicators as a macroeconomic indicator, even though the ECB states in the 2020 ECB Benchmarking of Recovery Plans that this indicator is too backward-looking, and early warning thresholds would alert the institution too late or not at all.

We do not see any relevance in implementing a recovery plan indicator for “available unencumbered assets”. The amount of ECB eligible unencumbered assets only gives an indication of available recovery capacity if a bank is in recovery. From our point of view, it does not indicate a recovery status that would legitimise the definition as a recovery plan indicator.

Question 10: Do you have any comments on the impact assessment? See our comments on questions 2 and 3.

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Name of the organization Die Deutsche Kreditwirtschaft / German Banking Industry Committee